New York Hospitals Look to Combine, Forming a Giant

Beth Israel Medical Center on the Lower East Side.Credit
Ruth Fremson/The New York Times

Two of New York City’s biggest hospital systems reached agreement on Wednesday to pursue a merger that would shake up the way medical care is delivered, especially in Manhattan, where hospitals compete to serve some of the wealthiest neighborhoods in the world.

The proposed merger would bring together NYU Langone Medical Center, a highly specialized academic medical center, and Continuum Health Partners, a network of several community-oriented hospitals, including Beth Israel and the two St. Luke’s-Roosevelt campuses.

It would create one of the largest health care systems in the city, one that would have immense market power under the new federal health care system, and put pressure on independent medical practices, insurance companies and even rival medical schools, which may have to find other places to train their students.

The deal was outlined in a memorandum of understanding approved on Tuesday and Wednesday by the boards of both nonprofit organizations, and it is still subject to final confirmation by the boards. It would also need regulatory approval, and at least one patient advocacy group promised to challenge it.

By strengthening its competitive advantage, a merged hospital system could limit options for patients and charge more for services, advocates fear. It would also have more power to negotiate higher rates with insurance companies, which might be passed on to consumers in the form of higher premiums.

The proposed merger comes amid a wave of health care consolidations around the country, driven by shrinking reimbursements from insurers and the government and by mandates of the federal health care law to operate more efficiently and at lower cost. Hospitals are combining with other hospitals, doctor’s offices and even insurance companies as payment models shift from fee-for-service to a per-person rate in which providers are expected to manage most of a patient’s care, requiring coordination among doctors and facilities.

“Economists have for some time now worried about the ceaseless consolidation on the supply side of the health care market, facing a much more splintered payment side with less market power,” Uwe E. Reinhardt, a health economist at Princeton University, said Wednesday.

The memorandum of understanding is essentially an agreement to share proprietary information, including financial, technology and personnel data, that would be needed to make a final decision to merge, most likely within six months. It is not binding, but it is a signal, as one hospital official said, that the proposal has gone beyond courtship to the engagement stage.

In a joint statement on Wednesday evening, the boards said they would explore how their partnership “could create a fully integrated health care delivery system for the benefit of the people they serve, including underserved populations.”

“Both entities expect,” it added, “that a successful partnership would achieve economies of scale that reduce health care costs while enhancing the quality of care and allowing for investment in new facilities.”

Photo

NYU Langone Medical Center, on First Avenue in Manhattan.Credit
Ruth Fremson/The New York Times

Any merger would have to be reviewed by the Federal Trade Commission, which would consider any antitrust implications, as well as by the State Health Department and the State Dormitory Authority, a financing and construction agency that carries some debt for Continuum.

At least one trustee suggested that the hospitals would argue that their market share should be looked at in the context of New York City as a whole — perhaps even the nation — and not just Manhattan. “You have to be competitive,” the trustee said, speaking on the condition of anonymity because, he said, any public comment would be scrutinized by the regulatory agencies. “More and more of the reimbursement is going to be tied to lowering your costs, not raising your costs.”

The new organization would capture a huge swath of Manhattan, including some of its most affluent neighborhoods. It would be a formidable rival in the fight for patients and market share with the current behemoth among New York City hospital systems, New York-Presbyterian, which was created by a 1998 merger of what are now known as Columbia University and Weill Cornell Medical Centers.

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“We don’t have any information or knowledge, so we really can’t speculate or comment on it,” Myrna Manners, a spokeswoman for New York-Presbyterian, said of the proposed merger.

The hospital with perhaps the most to lose would be Mount Sinai Medical Center, like NYU an academic medical center, which would be geographically sandwiched between the two chains. Dorie Klissas, a spokeswoman for Mount Sinai, said its system was expanding and had clinical affiliations and physician practices across the city and suburbs. “Our growing network confirms that there is an ample number of patients to serve,” Ms. Klissas said.

Officials said it was premature to predict that New York University Medical School would expand, but the merger could open up more hospital training slots for NYU medical students and cause Continuum’s current affiliates — Columbia University College of Physicians and Surgeons, Albert Einstein College of Medicine and New York Medical College — to lose some.

Mergers often lead to the elimination of some specialty services that are duplicated among the combining hospitals. But officials at the hospitals, who spoke on the condition of anonymity because of confidentiality agreements, said the two organizations would deliver services more efficiently and would complement each other. They would bring in patients with a wider variety of ailments than either hospital does now.

Continuum would bring its strong primary care and emergency medicine programs into the mix, and NYU could contribute its standing as an academic institution and its specialty physicians and technology.

But patient advocates may resist such a powerhouse.

“That’s really too bad,” Judy Wessler, director of the Commission on the Public’s Health System, said of the decision to move forward. She said her group would ask regulators to reject the merger.

Nisha Agarwal, deputy director of the Center for Popular Democracy, an advocacy group for low-income people, said she was “concerned about the antitrust implications and the impact on consumers,” but was not yet sure whether her group would file a legal challenge.

Dr. Reinhardt said that while hospitals talked about synergy and public interest, the biggest impact of such a merger would be to give them more leverage with insurance companies. But the insurance side has also been consolidating, he said, leading to a tug of war with hospitals.

“So a hospital can literally tell an insurer you either take our prices or you take a walk, and that’s what’s happening,” he said. “Both sides always justify that, not on the basis of crude market power — we want more market power to get better prices — they always find some kind of high national purpose.”

A version of this article appears in print on June 7, 2012, on Page A1 of the New York edition with the headline: Hospital Blocs Look to Merge, Forming Giant. Order Reprints|Today's Paper|Subscribe